RBS Lending Allegations Probed as FCA Asks Banks to Review Loans

Allegations that Royal Bank of Scotland Group Plc pushed small businesses into default will be investigated as the U.K. markets regulator called on other banks to review their lending practices.

The Financial Conduct Authority will consider whether to take action against the Edinburgh-based bank after a review by independent analysts, the watchdog said in a statement today. The London-based regulator will also write to other banks asking them to confirm that they “do not engage in any of the poor practices alleged” against RBS in a report this week.

Britain’s largest state-owned bank would charge companies advisory fees and buy their assets at reduced prices once they were in default, government consultant Lawrence Tomlinson said in a report published on Nov. 25. Business Secretary Vince Cable referred the matter to the FCA and Bank of England Governor Mark Carney called the reports “deeply troubling and extremely serious.”

“These allegations, if proved, raise serious concerns about how banks’ treat their customers,” Clive Adamson, the FCA’s director of supervision, said in the statement. “A small and medium enterprise’s relationship with its bank is essential for any business to have a chance to succeed, and claims like the ones made threaten to undermine that.”

The probe adds to the list of regulatory issues RBS is dealing with. RBS suspended two traders recently following an internal probe into alleged currency manipulation and handed over the emails of a former senior dealer to the FCA. The bank was fined about $612 million in February for rigging the London interbank offered rate and similar benchmarks, and has set aside more than 2.7 billion pounds ($4.4 billion) to compensate customers for improperly sold payment-protection insurance.

Criminal Probe

RBS hasn’t found any evidence of “systemic fraud,” the lender said in an e-mailed statement about Tomlinson’s report.

“These claims have done damage to RBS’s reputation and threaten to undermine our ability to build trust with customers and to increase lending to businesses in the U.K. economy,” Linda Harper, a spokeswoman for RBS, said in the statement. “We need to get to the facts as quickly as possible.”

The U.K. Serious Fraud Office is considering a criminal probe over the allegations. The London-based agency has interviewed people connected to U.K. businesses affected by RBS’s loans in recent weeks, a person with knowledge of the case has said.

RBS has also appointed London-based law firm Clifford Chance LLP to investigate the allegations. The FCA will pick from its list of about 40 approved firms, mainly lawyers and accountants, to conduct the independent review.

“The FCA is sending a clear message to the wider banking community,” said Simon Hart, a London-based lawyer. “It is trying to get ahead of the issue if it ultimately transpires that there is a wider market problem.”

To contact the reporters on this story: Suzi Ring in London at sring5@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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